The Tahoe
Accord is the key to the profit
linkage between the Plan/Hospitals (same board) and the Permanente
groups.

The 50-50 split of
profits was worked out over 50
years ago and is
still emphasized in the Permanente Journal as being intact
and operative. Monies not spent in various pools goes back to
the shareholders (The Doctors) and forms a yearly bonus
of
sizable proportion. This is the biggest motivator for each
physician
and pharmacist to accept the role of being a business entity.

Normally physicians get
paid 20% of the medical
dollar; the other
80% as patient services. In Kaiser the physician can
get
1 1/2 x as much money if that Permanante physician only orders about
half as much medical services per patient as does the
outside world. Most inside this system seem somewhat
depressed
about how they earn their money but vesting targets
(five year mark/ten year mark/, tenure, and great retirement keep them
going.

In 1955, Kaiser
Mangement and the Permanente
Physician Groups were having
disagreements over many different things.
A meeting was held at Lake Tahoe, at the Kaiser Family Compound for
the purpose of ironing out these disagreements.
It appears that if these concessions had not been made that Kaiser
Permanente would have just kind of faded into the
background and that patients today would not be having so many problems
receiving decent medical care.

The end result of this
meeting at Lake Tahoe is as
follows:

Per capita method of
contracting
Kaiser had been paying the medical groups a percentage of the prepaid
dues. The change was made so that revenue
became very close to actual operating costs. The Kaiser
Management
and the Medical Groups (The Permanente),
jointly agreed on a per capita rate.

Minimum
capital generation
requirement
The base line for financial stability for both the Health Plan and
the Doctors was agreed to be a straight-line depreciations
plus 4% per year of the "historical" cost of the land, buildings, and
equipment that the program used.

Incentive
compensation
This is how they decided to handle excess revenue that Kaiser ended
up with. The Kaiser Plan and the Permanente Doctors
just decided to divide it up amongst themselves. These
earnings
are supposed to be split equally between the medical groups
and the Hospitals. This was intended to provide financial
incentive
to the physicians to stick with the program and of course to
keep the Hospital earnings adequate.

The program
revenue concept
All the money that comes in goes into one big pot. This is
supposed
to support all operations.

Regional
financial autonomy
All Kaiser regions are separate from each other. They are
only
accountable to themselves. They also do not share
their money with the other regions. (Some Permanente groups
are taxed to
help develop others - like Missouri was taxed to help the
Washington D.C. build up; this internal redistribution tax
also helped Missouri to fail.) So if they run over
budget tough luck for the area patients. Of course
the doctors still
get to keep their profits.

Simplified
organizational
structure
This is where Kaiser stopped claiming that they owned all the
companies.
Thus the creation of the Health Plan, the Hospitals and the
medical groups.

All
Permanente Groups are For Profit
Corporations or Partnerships.

The joint
management concept
Since the Regional Management Plans were not working they got rid of
them but kept the partnership concept.
They created a joint medical director-regional manager
concept.
This made the medical director the chief executive of the
medical group.

The regional manager
became the chief executive of
both the hospitals
and the Health Plan within the region.

These people became
responsible for making it work
in their area.
But more important these positions make or break any chance of
having a successful career. These people have implied
right of review and concurrence in the matter of key
personnel appointments.

Physician's
retirement plan
This resulted in a Constitution and Bill of Rights between The
Permanente
Medical Group and the Kaiser Foundation
Health Plan.

This clarified the
separation between the
Insurance Program and the
Medical Group. This also tied the Medical Group into
dealing exclusively with the Insurance Program and barred any
such contract with any other Insurance Plan. Most of
this Medical Service Agreement dealt with financial matters.

The Health Plan ended
up with the responsibility
of providing facilities
and equipment and collecting the revenue.

The Medical Group
became responsible for Medical
Claims, yet any dispute
over claims was reviewed by the Health Plan who also became
responsible for enrollee contracts.

Finally a definition of
net Health Plan revenue
was finalized.
Funds generated for and contributed to capital,
including depreciation plus 4% of the historical cost of land,
buildings and
equipment was not considered as part of the net Health Plan
revenue. The definition was further clarified over the matter
of other revenues collected at the point of service,
the registration fees, the co-payments, etc. Those
revenues belong
to the Health Plan.

Fees for medical
services rendered by Permanente
Physicians to nonmembers,
for industrial care, witness fees, fees for medical reports
and income from the sale of medical equipment were
not for the Health Plan revenue and could be kept by the
Permanente.

Instead of having a
negotiated percentage of dues,
it became a capitation
contract based on a per member per
month compensation. The Health Plan agreed to pay
the Permanente 50%
of the net Health Plan revenue to be used in community service
activities or in the generation of capital.

The Medical Group
retained sole responsibility for
establishing a method
of distributing to people within the Medical Group. This
allowed the physicians the freedom and flexibility to establish
incentives for both performance and recruitment.

For retirement, a
predetermined amount was to be
deposited with Bank
of America, per month into a trust fund for physicians of the
Medical Group. The Medical Group was promised
that the IRS would approve this plan. However, the
IRS ruled that these funds represented current and taxable earnings
by the Permanente physicians. Later the IRS changed
it's mind in an "X" and "Y" document which tries to hide how
it was making exceptions for Kaiser.

All
Permanente Groups are For Profit
Corporations or Partnerships.

Without the Tahoe
Agreement there probably would
not be a Kaiser Permanente
today.
I am quite certain that any reasonable person, of any age can see how
negative human characteristics, such as greed and corruption
could take advantage of any reasonably written plan
in particular The Tahoe Accord.

Further
information on The Tahoe Accord
may be found at:
Can Physicians Manage The Quality and Costs of Health Care? - The Story
of The Permanente Medical Group by
John G. Smillie,M.D., Copyright 1991 by McGraw-Hill, Inc., pages
154-165
available for purchase through Kaiser Permanente and McGraw-Hill

The Bancroft Library
in Berkeley, California
At the Bancroft Library buried in a folder entitled "Hospitals
Administration,
1955" in the carton
(BANC MSS 83/42c.,Carton 100.
Henry J. Kaiser Papers) DECISIONS OF WORKING COUNCIL.
This was held on May 12 and 13, 1955. The accompanying folder is
entitled
"Hospitals, Administration, Working Council)